Thoughts From the Frontline, August 2009

We have arrived at this particular economic moment in time by the choices we have made, which now leave us with choices in our future that will be neither easy, convenient, nor comfortable. Sometimes there are just no good choices, only less-bad ones. In this week's letter we look at what some of those choices might be, and ponder their possible consequences. Are we headed for a double-dip recession? Read on.

But first, I want to make a very important announcement. There are not many times in...

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This week we further explore why this recovery will be a Statistical Recovery, or one that, as someone said, is a recovery only a statistician could love. We look at capacity utilization, more on housing, some thoughts on debt and deflation, and some intriguing charts on volatility in the last secular bear-market cycle. This letter will print a little longer, but there are lots of charts. I have written this during the week, and I finish it here in Tulsa, where Amanda gets married tomorrow....

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A few weeks ago I first used the term "statistical recovery" to describe the nature of today's economic environment. Today we are going to further explore that concept, as it is important to have a real understanding of what is happening. This coming "recovery" is not going to feel like a typical one, and those expecting a "V"-shaped recovery are simply making projections from previous economic recoveries, which, based on the fundamentals, are not warranted. And of course, a few thoughts coming...

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The Efficient Market Hypothesis, according to Shiller, is one of the most remarkable errors in the history of economic thought. EMH should be consigned to the dustbin of history. We need to stop teaching it, and brainwashing the innocent. Rob Arnott tells a lovely story of a speech he was giving to some 200 finance professors. He asked how many of them taught EMH - pretty much everyone's hand was up. Then he asked how many of them believed it. Only two hands stayed up!